The following answers are no longer valid and have been replaced.

A1. Will taxpayers need to calculate the business income, modified gross receipts, and surcharge separately and pay 85% of each to meet the estimated tax payment safe harbor provision in order to avoid interest?

The following answer has been rescinded and replaced by A22.
Tax liability of the act is imposed on two components; federal taxable income derived from business activity and modified gross receipts. These two components form the basis for tax liability. Estimated tax payments are governed under Section 501. If the sum of the estimated payments equals at least 85% of the liability and the amount of each estimated payment reasonably approximates the tax liability incurred during the quarter for which the estimate is made, interest will not be assessed. Therefore, while a calculation must be made for each component in order to determine tax liability, only one estimated payment of 85% of that liability need be remitted. There is no requirement to remit an estimated payment for each separate tax liability component.

A5. How are quarterly estimates calculated?

The following answer has been rescinded and replaced by A23.
The sum of estimated payments must equal at least 85% of estimated tax liability for the year, and the amount of each estimated payment must reasonably approximate the tax liability for that quarter. For Tax Year 2009 and after, if prior year's tax is $20,000 or less, estimated tax will be prior year's amount in four equal payments, the sum of which equals the previous year's tax liability. If the year's tax liability is $800 or less, quarterly returns are not required.

A13. Will a safe harbor be allowed for 2008 estimates based on the 2007 SBT return?

A21. How does a taxpayer with a fiscal year end calculate tax under the MBT for estimate purposes?

The following answer has been rescinded and replaced by A25.
If estimated tax liability for the year is over $800.00, a taxpayer must file estimated quarterly returns and payments. Quarterly returns for fiscal year taxpayers are due the 15th day of the first month after each quarter. Any quarter less than 3 months is due on the 15th day of the month immediately following the final month of the taxpayer's tax year. In the case of a short taxable year, no estimated tax payment is required if the short taxable year is a period of less than four full calendar months; or the estimated tax liability for the year is $800.00 or less. See IRS Reg. 1.6655-5(b).

The estimated payment made with each quarterly return must be for the total estimated business income tax base and modified gross receipts tax base for the quarter, or 25% of the estimated annual liability. To avoid penalty and interest charges, estimated payments must equal at least 85 percent of the liability for the tax year, and the amount of each estimated payment must reasonably approximate the tax liability for each quarter. If the year's tax liability is $800.00 or less, quarterly returns are not required. Estimates cannot be based on the prior year's SBT liability, and can no longer be based on 1% of gross receipts.

For taxpayer's whose apportioned or allocated gross receipts equal $350,000 or more, the MBTA imposes a 4.95% business income tax and a modified gross receipts tax at the rate of 0.8%. A credit reduces the tax correspondingly if gross receipts are between $350,000 and $700,000.

For most taxpayers, the business income tax base is essentially that part of federal taxable income derived from business activity, modified by the following to the extent included in, excluded from, or deducted in arriving at federal taxable income:

Additions:

• Interest income and dividends derived from obligations or securities of states other than Michigan,
• Taxes on or measured by net income and the tax imposed under the MBT,
• Any carryback or carryover of a net operating loss,
• Loss attributable to another taxable entity,
• Royalty, interest, or other expense paid to a person related to the taxpayer by ownership or control for the use of an intangible asset if the person is not included in the taxpayer's unitary business group.

Subtract:

• Dividends and royalties received from persons other than United States persons and foreign operating entities,
• Income attributable to another taxable entity,
• Interest income derived from United States obligations,
• Earnings that are net earnings from self-employment as defined under section 1402 of the internal revenue code of the taxpayer or a partner or limited liability company member of the taxpayer except to the extent that those net earnings represent a reasonable return on capital.

The modified gross receipts tax base consists of gross receipts less purchases from other firms. Gross receipts are defined as the entire amount received by a taxpayer from any activity carried on for direct or indirect gain, benefit, or advantage to the taxpayer or to others, with certain specific exceptions. "Purchases from other firms" is generally limited to inventory acquired during the tax year, depreciable assets acquired during the tax year, and materials and supplies directly connected to inventory or depreciable assets.

A26. Will a taxpayer be required to make a payment with an extension request or is the listing of estimated payments made going to be accepted as it is in the Single Business Tax?

The following answer has been rescinded and replaced by A30.
Section 505(3) of the Michigan Business Tax Act (MBTA) instructs that upon application of the taxpayer and for good cause shown, the Department may grant an extension to file the annual Michigan Business Tax (MBT) return. MCL 208.1505(3). The section further instructs that the Treasurer shall require, "[w]ith the application payment of the estimated tax liability unpaid for the tax period covered by the extension."

C6. What is the compensation credit?

The following answer has been rescinded and replaced by C21.
MCL 208.1403 provides a credit in the amount of .370% of a taxpayer's compensation in Michigan, not to exceed 65% of the taxpayer's liability imposed under the MBT.

"Compensation" is defined as all wages, salaries, fees, bonuses, commissions, other payments made in the tax year on behalf of or for the benefit of employees, officers, or directors of the taxpayers, and any earnings that are net earnings from self-employment as defined under section 1402 of the internal revenue code of the taxpayer or a partner or limited liability company member of the taxpayer. (Additional information is provided in MCL 208.1107(2)).

C11. Is the farmland preservation credit available under the Michigan Business Tax?

The following answer has been rescinded and replaced by C22.
No. The farmland preservation credit is found in the Natural Resources and Environmental Protection Act, 1994 PA 451. This is a stand-alone statute apart from both the Single Business Tax and the Michigan Business Tax. The public act was written to provide the farmland preservation credit (for qualifying taxpayers) against the SBT and the individual income tax. MCL 324.36109. The calculation of the credit is performed in reference to the SBT and the statute does not provide a similar credit for the MBT. MCL 324.36109(2).

C12. Will the recapture limiting language of MCL 208.1403(3)(d)-(f) apply to both the Michigan Business Tax Investment Tax Credit (ITC) and ITC taken under the former Single Business Tax?

The following answer has been rescinded and replaced by C27.
Yes, under MCL 208.1403(3)(d)-(f) ITC recapture is limited to the extent ITC was taken when the cost for the original asset acquisition was paid or accrued and at the rate at which the credit was used under the former SBTA or the MBTA. The recapture applies to depreciable assets acquired before and after December 31, 2007. In other words, a person must recapture ITC upon disposition of assets acquired under both the MBT and the SBT subject to the recapture limitations of MCL 208.1403(3)(d)-(f) that apply to both the SBTA and the MBTA.

M1. Does the Modified Gross Receipts Tax component of the Michigan Business Tax Act tax capital gains of investors, including trusts, Family Limited Partnerships and individuals?

The following answer has been rescinded and replaced by M26.
Yes, the modified gross receipts tax is a tax on every taxpayer with nexus. "Taxpayer" means a person or a unitary business group liable for a tax, interest, or penalty under this act. The term "person" means an individual, firm, bank, financial institution, insurance company, limited partnership, limited liability partnership, copartnership, partnership, joint venture, association, corporation, subchapter S corporation, limited liability company, receiver, estate, trust, or any other group or combination of groups acting as a unit. Therefore, the modified gross receipts tax is imposed on the above named persons if taxpayer nexus with Michigan exists.

The modified gross receipts tax base is a taxpayer's gross receipts less purchases from other firms before apportionment. The definition of "gross receipts" means the entire amount received by the taxpayer from any activity whether intrastate, interstate, or foreign commerce carried on for direct or indirect gain, benefit, or advantage to the taxpayer or to others with certain exceptions. MCL 208.1111(1)(o) excepts from gross receipts, proceeds from sales of capital assets as defined in section 1221(a) of the internal revenue code, less any gain from the disposition to the extent that gain is included in federal taxable income. Stated another way, the gain included in federal taxable income is included in the modified gross receipts tax base. There are no other statutory exceptions or exclusions that are applicable to capital gains recognized from the sale of investment assets. As a result, these gains are included in gross receipts.

M14. What are purchases from other firms?

The following answer has been rescinded and replaced by M67.
"Purchases from other firms" are deducted from a taxpayer's gross receipts to calculate the modified gross receipts tax base. In general, purchases from other firms means: Inventory acquired during the tax year. Inventory ? defined at MCL 208.1111 ? means the stock of goods, including electricity and natural gas, held for resale in the ordinary course of a retail or wholesale business, and finished goods and good in process of a manufacturer, including raw materials purchased from another person. Inventory also includes floor plan interest for licensed new car dealers and shipping and engineering charges so long as such charges are included in the original contract price for the associated inventory. Depreciable assets acquired during the tax year. Deductible depreciable assets are those that are or will become eligible for depreciation, amortization, or accelerated capital cost recovery under the IRC. The cost of depreciable assets includes costs of fabrication and installation. Materials and supplies. Materials and supplies means tangible personal property acquired during the tax year to be used or consumed in ? and directly connected to ? the production or management of inventory or the operation or maintenance of depreciable assets as described above. "Materials and supplies" includes repair parts and fuel. Staffing company compensation. Wages, benefits, and certain payroll taxes paid to personnel provided to the clients of staffing companies as defined under the MBT. Payments to subcontractors. For persons included in SIC codes 15, 16, and 17 ? such as general contractors, operative builders, and trade contractors ? payments to subcontractors for construction projects so long as such payments are made pursuant to a contract specific to that project. For a more complete list of those persons within SIC codes 15, 16, and 17, see http://www.osha.gov/pls/imis/sic_manual.html. Select Payments by Theater Owners. For the 2009 tax year, 50% of film rental or royalty payments paid by a theater owner to a film distributor and/or a film producer. For the 2010 tax year and beyond, all film rental or royalty payments paid by a theater owner to a film distributor and/or a film producer. The more specific statutory definition of "purchases from other firms" is found at MCL 208.1113(6).

M38. May taxpayers, including corporations and partnerships, take the IRC 199 deduction for MBT purposes?

The following answer has been rescinded and replaced by M68.
MBT taxpayers that are taxable as corporations that qualify for an IRC 199 deduction on their federal tax return will automatically experience a corresponding reduction in their business income tax base and MBT liability. MBT taxpayers that are pass-through entities are not entitled to take the IRC 199 deduction at the entity level, but rather the deduction is taken at the shareholder, member, or partner level for Michigan income tax purposes.

The domestic production activities deduction under IRC 199 provides a tax benefit for certain domestic production activities. In particular, IRC 199 allows a deduction equal to a specified percentage of the taxpayer's qualified production activities income for the tax year. The specified percentage is 6% for 2008-2009, and 9% thereafter.

The deduction is available to corporations, individuals, estates, and trusts that are engaged in certain domestic trade or business activities. For pass-through entities, including partnerships, limited liability corporations taxed as partnerships, and S corporations, the deduction is based on the activities of the pass-through entity but is computed at the individual partner, member, or shareholder level. Taxpayers use federal Form 8903 to compute the deduction.

Under the MBT, for taxpayers other than insurance companies and financial institutions, the business income tax comprises a portion of the total tax liability and is calculated by multiplying the business income tax base after apportionment by the applicable rate. "Business income tax base" means "a taxpayer's business income subject to" certain adjustments. MCL 208.1201. "Business income" means "that part of federal taxable income derived from business activity." MCL 208.1105. "Federal taxable income" means "taxable income as defined in [IRC 63]." MCL 208.1109. Federal taxable income is determined under IRC 63 by subtracting the IRC 199 deduction from gross income. For partnerships (including limited liability companies taxed as partnerships) and S corporations, business income also includes "payments and items of income and expense that are attributable to business activity of the partnership or S corporation and separately reported to the partners or shareholders." MCL 208.1105.

Corporations. For taxpayers taxed as corporations, federal taxable income includes the IRC 199 deduction. In other words, for federal corporate return purposes, the domestic production activities deduction (Form 1120, line 25) is used to calculate (and reduce) federal taxable income (Form 1120, line 30). In turn, business income for MBT purposes is reduced. No MBT provision specifically disallows corporations from taking IRC 199 deductions, nor is there a provision that requires any IRC 199 deduction to be added back to business income. Thus, MBT taxpayers taxed as corporations that qualify for an IRC 199 deduction on their federal tax return will automatically experience a corresponding reduction in its MBT business income tax base and resulting MBT liability.

Pass-Through Entities. Federal taxable income for pass-through entities is determined under IRC 703 and 1363. Business income includes "payments and items of income and expense that are attributable to business activity of the partnership or S corporation and separately reported to the partners or shareholders." MCL 208.1105.

By its express terms, IRC 199 does not apply at the entity level with regard to pass-through entities and is not included in the federal taxable income of the entity. See IRC 199(d)(1)(A). Furthermore, IRC 199 is not an item of income or expense separately stated under IRC 702(a). See IRC 199, 703, and 1363. Rather, pass-through entities must directly report to shareholders, members, or partners each item of information needed to calculate the domestic production activities deduction at the shareholder, member, or partner level. Thus, the domestic production activities deduction is not applicable to pass-through entities for MBT purposes; rather, the IRC 199 deduction is taken at the shareholder, member, or partner level for Michigan income tax purposes.

M46. Is the sale of stock by a stockholder in a closely held corporation back to the corporation or another stockholder subject to MBT?

The following answer has been rescinded and replaced by M70.
For an individual, the sale of stock in a corporation will generally not constitute business income or gross receipts to that individual so long as the investment does not constitute or is part of the individual's trade or business.

The sale of stock would generally be included in a taxpayer's business income and gross receipts tax bases; however, there are specific exceptions. MCL 208.1105(2)(e)(i) provides that for an individual, estate, partnership or trust organized exclusively for estate or gift planning purposes, income from personal investment activity is not included in business income. Therefore, to the extent that the stockholder is an individual and that the sale of the stock is a personal investment activity that does not constitute nor is part of the individual's trade or business, then the sale of the stock is not included as business income subject to MBT. Also, for an individual, estate, partnership or trust organized exclusively for estate or gift planning purposes, proceeds from personal investment activity that does not constitute a trade or business are not included in the gross receipts tax base subject to MBT. MCL 208.1111(1)(v)(v). Therefore, if the stockholder is an individual and the sale of stock does not constitute nor is part of a trade or business, the amount received by the stockholder taxpayer for the sale of the stock would not be included in the modified gross receipts tax base.

M47. Are dividends from subsidiaries and interest income from unrelated parties included in the modified gross receipts tax base in the MBT?

The following answer has been rescinded and replaced by M71.
Interest income from unrelated parties is included in a taxpayer's modified gross receipts (MGR) tax base, with one exception. MCL 208.111(1) Interest income received by a taxpayer that is an individual, estate or partnership organized exclusively for estate or gift planning purposes or trust organized exclusively for estate or gift planning purposes from the taxpayer's personal investment portfolio or retirement account or from transactions, activities and sources other than in the regular course of the taxpayer's trade or business is excluded from gross receipts.

The inclusion of dividends from a subsidiary into a taxpayer's MGR tax base depends upon whether the taxpayer is a unitary business group and whether the subsidiary is a member of the unitary group. Dividends from a subsidiary are included in a taxpayer's MGR tax base where the subsidiary is not a member of a unitary business group. Dividends from a subsidiary that is a member of a unitary business group taxpayer, however, are not included in the taxpayer's MGR tax base as the inter-company dividends are eliminated under MCL 208.1203(3) and MCL 208.1511.

M66. Can a taxpayer net the cost of purchased securities with the proceeds from those securities? For purposes of taxing the gain, is the cost the actual cost of the securities or the fair market value on January 1, 2008?

The following answer has been rescinded and replaced by M72.
Generally, securities, such as stocks, bonds and similar intangibles, will be capital assets under section 1221 of the IRC unless the securities are inventory to the taxpayer. Receipts from the sale of capital assets could be taxable in both the business income and modified gross receipts tax bases of the MBT. Business income is generally defined as "that part of federal taxable income derived from business activity." MCL 208.1105(2). To the extent the capital gain from the sale of the securities is derived from the business activity of the taxpayer, the gain must be included in the business income tax base of the MBT. For this purpose, the capital gain will be computed the same as it was federally, which is proceeds from the sale minus basis. The result will flow to the MBT return if the gain is derived from the business activity of the taxpayer. The "cost" or basis is the acquisition cost of the asset just as it is for federal purposes and is not the fair market value as of January 1, 2008, the date that the MBT went into effect.

For purposes of the modified gross receipts tax base, if the securities are sold at a gain then the proceeds of the sale of the securities minus any gain from the sale, to the extent that the gain was included in federal taxable income, will be excluded from the tax base.

If the securities were held for investment purposes by and are sold by an individual, estate, trusts or family limited partnerships (FLIP) that is specifically established for estate planning purposes, then the receipts on the sale of the securities are not taxable in either MBT tax base. MCL 208.1105(2) and 1111(v)(v).

Mi1. Revenue Administrative Bulletin 2001-2 describes provisions of the SBT related to the tax base of a foreign person for tax years beginning in or after 2000. Does RAB 2001-2 apply to the MBT?

The following answer has been rescinded and replaced by Mi40.
Bulletins issued to provide guidance under the SBT are not necessarily applicable to the MBT. Furthermore, RAB 2001-2 generally addresses provisions of the SBT specific to foreign persons. Other than the definition of unitary business group under MCL 208.1117, which is limited to U.S. persons, the MBT does not distinguish between foreign and U.S. persons.

Mi5. Are limited liability companies subject to the MBT?

Mi6. What is the meaning of the acronym FIRE which appears in the presentation entitled MBT Overview?August 1, 2007 on the MBT Website?

The following answer has been rescinded and replaced by Mi34.
The acronym FIRE, at slide 12 of the presentation, stands for Financial Sector, Insurance Sector and Real Estate Sector. The presentation, which was one of the Department's earliest overviews of the newly enacted Michigan Business Tax Act (MBTA), indicated that these industries may pay more under the MBT than under the SBT.

Insurance companies will pay a gross direct premiums tax of 1.25% under the MBT, as addressed in Chapter 2A of the MBTA. Financial institutions will pay a tax on net capital at a rate of 0.235%, as explained in Chapter 2B. Real estate entities, like all taxpayers not taxed under Chapters 2A or 2B, are subject to the Business Income and Modified Gross Receipts taxes found in MCL 208.1201 and MCL 208.1203, respectively.

On December 1, 2007, the MBTA was amended to impose, in addition to the taxes described above, an annual surcharge on each taxpayer, except insurance companies. The surcharge is equal to a specified percentage of the taxpayer's MBT liability, after allocation or apportionment to Michigan, but before calculation of the various credits in the MBTA.

For a financial institution, the MBT surcharge is 27.7% for tax years ending in 2008, and 23.4% for tax years ending in 2009 and later. Financial institutions authorized to exercise only trust powers are not subject to the surcharge.

For real estate entities, like all taxpayers other than insurance companies and financial institutions, the MBT surcharge is equal to 21.99% of MBT liability.

The amount of the surcharge imposed on any taxpayer, other than financial institutions, cannot exceed $6,000,000.00 for any single tax year.

Mi18. Are limited liability companies subject to the MBT?

However, to the extent that a limited liability company is a single member limited liability company disregarded for federal tax purposes, then the owner of that limited liability company will be the taxpayer under the MBT. The disregarded single member limited liability company will be treated as a sole proprietorship, branch, or division of its owner.

U6. Would a group of companies who have a flow of value between them but are owned by two unrelated persons, each owning 50%, be considered a unitary business group?

The following answer has been rescinded and replaced by U51.

No. To meet the definition of a unitary business group in the Michigan Business Tax Act (MBTA) the U.S. persons, other than foreign operating entities, which cannot be included in the group, must pass a control test and 1 of 2 relationship tests. MCL 208.1117(6). The control test requires that one of the U.S. persons own or control, directly or indirectly, more than 50% of the ownership interests with voting rights or similar rights of the other U.S. persons. MCL 208.1117(6).

For purposes of MBTA section 117(6), the Department will use as guidance attribution rules expressed in IRC § 318 or analogous authority to determine indirect or constructive ownership and control. While IRC § 318 specifically pertains to corporate stock ownership, the Department will apply its principles to all forms of entities subject to the MBT.

As the subject persons are described as nonrelated and each owning 50% of the group, the control test in section 117(6) is not met. Thus, these entities do not comprise a unitary business group.

U8. What is a unitary business group?

Control Test. The control test is satisfied when one person owns or controls, directly or indirectly, more than 50% of the ownership interest with voting or comparable rights of the other person or persons. Generally, indirect ownership is determined using IRC 318, except that the Department will apply IRC 318 to all forms of ownership interests.

Relationship Tests. In addition to satisfying the control test, the group of persons must have business activities or operations that (1) result in a flow of value between or among persons in the group, or (2) are integrated with, are dependent upon, or contribute to each other.

Flow of value is established when members of the group demonstrate one or more of functional integration, centralized management, and economies of scale. Examples of functional integration include common programs or systems and shared information or property. Examples of centralized management include common management or directors, shared staff functions, and business decisions made for the group rather than separately by each member. Examples of economies of scale include centralized business functions and pooled benefits or insurance. Groups that commonly exhibit a flow of value include vertically or horizontally integrated businesses, conglomerates, parent companies with their wholly owned subsidiaries, and entities in the same general line of business. Flow of value must be more than the mere flow of funds arising out of passive investment.

Businesses are integrated with, are dependent upon, or contribute to each other under many of the same circumstances that establish flow of value. However, this alternate relationship test is also commonly satisfied when one entity finances the operations of another or when there exist intercompany transactions, including financing.

U23. What is a unitary business group?

The following answer has been rescinded and replaced by U48.

The designated member of a unitary business group must register with the Department for the MBT. "Designated member" means a member of a unitary business group that has nexus with Michigan under MCL 208.1200 and that will file the combined return required under MCL 208.1511 for the unitary business group. Only the designated member must register, and the MBT return will be filed under its FEIN.

If the member that owns or controls the other members of the unitary business group has nexus with Michigan, then that controlling member must be the designated member. Otherwise, the designated member can be any member of the unitary business group with nexus. The designated member must remain the same every year unless the designated member ceases to be a member of the unitary business group or the controlling member engages in activity in Michigan that subjects that member to nexus.

While only the designated member will register with the Department, all members of the unitary group will be listed on the group's annual return.

U24. If five or fewer persons who are unrelated individuals, estates or trusts own a controlling interesting in a brother-sister group of entities, will that satisfy the control test for purposes of qualifying as a unitary business group?

The following answer has been rescinded and replaced by U52.

No, so long as none of the five or fewer unrelated individuals, estates or trusts own more than 50% of the brother-sister group of entities.

Under the MBT, a unitary business group is:

a group of United States persons, other than a foreign operating entity, 1 of which owns or controls, directly or indirectly, more than 50% of the ownership interest with voting rights or ownership interests that confer comparable rights to voting rights of the other United States persons, and that has business activities or operations which result in a flow of value between or among persons included in the unitary business group or has business activities or operations that are integrated with, are dependent upon, or contribute to each other. For purposes of this subsection, flow of value is determined by reviewing the totality of facts and circumstances of business activities and operations. [MCL 208.1117(6).]

The Department will follow IRC 318 or analogous authority to determine indirect, or constructive, ownership and control, except that the Department will apply IRC 318 to all ownership interests.

Under the SBT, controlled groups and entities under common control were generally defined to include situations where the same five or fewer unrelated individuals, estates or trusts owned a controlling interest in two or more entities taking into account the ownership of each such person only to the extent such ownership is identical with respect to such entity. See, e.g., RAB 1989 48. However, so long as none of the five or fewer unrelated individuals, estates or trusts own more than 50% of the brother-sister group of entities, these control tests under the SBT do not apply to the MBT for purposes of determining a unitary business groups.

U30. Are foreign entities includable in unitary business group? What if the foreign entity is the single member of a domestic single member limited liability company disregarded for federal tax purposes?

The following answer has been rescinded and replaced by U36.

A unitary business group is defined ? in part ? as:

a group of United States persons, other than a foreign operating entity, 1 of which owns or controls, directly or indirectly, more than 50% of the ownership interest with voting rights or ownership interests that confer comparable rights to voting rights of the other United States persons . . . . [MCL 208.1117(6) (emphasis added).]

"United States person" means "that term as defined in [IRC] 7701(a)(30)." MCL 208.117(7). Under IRC 7701(a)(30), "United States person" means:

(A) a citizen or resident of the United States,
(B) a domestic partnership,
(C) a domestic corporation,
(D)any estate (other than a foreign estate, within the meaning, of paragraph (31)), and
(E) any trust if?
(i) a court within the United States is able to exercise primary supervision over the administration of the trust, and
(ii) one or more United States persons have the authority to control all substantial decisions of the trust. [IRC 7701(a)(30).]

A partnership or corporation is "domestic" when that entity is "created or organized in the United States or under the law of the United States or of any State unless, in the case of a partnership, the Secretary provides otherwise by regulations." IRC 7701(a)(4).

In other words, a foreign entity is not a U.S. person and is therefore excluded from unitary business groups. Similarly, foreign operating entities are also excluded from unitary business groups under the MBT. "Foreign operating entity" means a U.S. person that:

(a) Would otherwise be a part of a unitary business group that has at least 1 person included in the unitary business group that is taxable in this state.

(b) Has substantial operations outside the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, or a political subdivision of any of the foregoing.

(c) At least 80% of its income is active foreign business income as defined in section 861(c)(1)(B) of the internal revenue code. [MCL 208.1109(5).]

Foreign entities or foreign operating entities are excluded even if that entity owns a domestic single member limited liability company disregarded for federal tax purposes. The domestic disregarded entity and foreign parent will file separately ? the domestic subsidiary as part of the unitary business group and the foreign entity, or foreign operating entity, as a separate taxpayer. [Note: The insertion of a foreign entity or foreign operating entity into a chain of ownership does not cut off the entities under the foreign entity from the unitary business group so long as the control and relationship tests for a unitary business group are satisfied.]

Foreign entities or foreign operating entities are also excluded if that entity is the disregarded entity of a domestic entity included in a unitary business group. In that case, the foreign entity must file a separate return.